06 Jun 2010, Posted by Eric Karstens in European Policy, 0 Comments

A primer on EU funding for NGOs

The funding of Non-Governmental Organizations (NGOs) usually depends on multiple sources, ranging from private donors over corporate sponsors to money made available by governments and international organizations such as the European Union. Gaining access to EU financing is, however, almost a scientific discipline in its own right. This is why I was kindly invited to give a talk about the subject at the Media NGO Fair that took place in Maastricht from 3-5 June, 2010. Arranged by the EJC, the event was supported by the Dutch Ministry of Education, Culture and Science (Ministerie van Onderwijs, Cultuur en Wetenschap).

The EU has two basic ways of spending money: Grants, which are subsidies for actions supporting EU policies, and Service Contracts, where contractors get paid to perform tasks directly on behalf of the EU.

At first glance, grants seem to be the natural funding instrument for NGOs, and typically only non-profit organizations are allowed to apply anyway. There are exceptions though, such as under the Framework Programme for Research, where companies and industry are eligible to receive subsidies as well. With grants, the EU relinquishes (to some extent) control of the outcome of actions proposed by independent parties, meaning that the beneficiary of a grant owns the project and its results. If you create, for instance, a book, a website, or any other kind of tangible or intangible product, the EU has no claims to copyright or direct editorial influence.

Service contracts, on the other hand, entail full EU ownership of all results, irrespective of whether they are buildings, objects, or rights, and put the EU administration in full and immediate control of any properties of the action or product. For example, in case you work on a website, the EU will tell you exactly which kinds of contents to put on it and require seeing and officially accepting all details before they are published. Similar procedures apply with all kinds of service contracts.

By the way, compared to most member states’ civil service infrastructures, the EU actually has a relatively small number of officials and other employees, and therefore implements the majority of its policies and actions with the help of private contractors.

Frameworks of reference

There are significant differences between how grant beneficiaries and service providers are selected. Many grants come under umbrella policy programmes such as the European Neighbourhood Policy, which are divided up into a plethora of sub-programmes and actions. There might be, say, the objective of raising awareness of EU affairs in the Maghreb region. The European Commission would then publish a call for proposals to that effect. It might lay down certain requirements or restrictions on which kinds of organizations they are looking for, whether there is a minimum number of legal entities and countries to be involved, and what the overall budget line is.

Where grants are concerned, the EU would however not specify how exactly an applicant is supposed to achieve the objective. To the contrary, one of the main intentions behind such grant procedures is to elicit creative solutions from a community of independent providers rather than narrowing options down too much. This is a very good thing in principle, as applicants may come up with brilliant and highly effective suggestions which an EU official might never have considered.

With service contracts, it is quite the opposite. The EU will describe in detail what precisely it wants to buy and exact quality criteria against which it will measure the results. In many if not most cases, there is not much room left for creativity; if you digress from the tender specifications, your bid will most probably be rejected without further ado. And if you think that the specifications are ill-conceived or otherwise problematic, you may start a discussion with the administration, but usually you will not be able to stop or change the original call for tender.

Competition analysis

Accordingly, when you are thinking of submitting a bid for a service contract, you know pretty well what the customer expects. Therefore you can determine relatively easily whether your own organization’s competencies are up to the task, and also come up with a list of likely competitors. Consequently, your risk analysis – is it worth the considerable effort to prepare an offer? – is pretty simple. You still may lose, but your odds are more or less clear right from the beginning.

Grant proposals are quite different. Since the tendering authority does not explain what exactly it wants you to do, but rather somewhat vaguely explains the overall objectives of the policy programme, you basically have no way to assess competition. To stay with the “EU awareness in the Maghreb” example mentioned above: You could come up with a brilliant proposal for an innovative website, but you may be up against others who suggest an equally brilliant mobile application, or a satellite service, or had a stroke of genius related to the next big thing in Arabic outdoor advertising.

In short: When you apply for a grant, there may be dozens or even hundreds of competing proposals, and what is even worse: Many of them may not even be remotely comparable with your own.

Usually, the EU employs juries of independent experts to evaluate grant applications. Aside from the vagaries of jury composition (which is basically a lottery), any given jury only sees a limited number of proposals and allocates points to them according to the award criteria. Subsequently, the available money gets allocated from the top down, meaning that the proposal with the highest score receives funding first, then the second in line and so on until the funds are depleted, but more or less irrespective of the actual content. So if your proposal comes in fifth, but submissions one to four have used up the entire budget already, you lose out. Yours might have been the best web-related idea, but as it happens, some other, completely different suggestions received a few more points from their respective juries.

Mind you, this procedure is quite fair and serves the honourable purpose of encouraging innovative solutions pretty well. But everybody applying for an EU grant should think at least twice: Can you really justify the time and effort your organization needs to spend for the proposal in the light of comparatively uncertain prospects of success?

Profits and disclosures

And there is yet another catch with EU grants: As opposed to service contracts, most of them fund only a percentage of the direct costs – usually 50 to 75 percent – while you need to find the remaining resources somewhere else, either in your organization’s own pocket or in third-party donations. As all NGO fundraisers know very well, that can be difficult, particularly in times of global economic woes.

Accordingly, in many cases I would recommend for NGOs to apply for EU grant funding only in case of projects they will implement anyway, with or without EU money. If successful, they can improve or expand the project, or go easier on their own budget. The other way around, however, may well be detrimental to your organization’s financial health: You receive some EU money for an action you only came up with because there was EU money available, but if you fail to find the supplementary financing elsewhere, you have to bankroll the remainder yourself. While some NGOs can easily do that, others might be driven to the brink of bankruptcy.

Another fundamental difference between grants and service contracts is that for the latter you can quote competitive market prices. If you deliver the best value for money and the EU accepts your price schedule, it is condoned that you possibly generate some profits out of the action; it’s a regular business relationship and not a matter of altruism. Of course, NGOs are under a duty to spend profits they reap from one project for other charitable actions, but there is hardly a shortage of worthwhile actions to pursue.

Moreover, for grants, the EU requires full financial transparency because it will only reimburse costs, while profits are expressly not permitted. Therefore, your organization will be required to submit detailed accounting of costs and expenses and even to disclose actual salaries of staff members involved in the activity. This means effectively that EU money is merely passing through your organization. Even if all goes well financially and you implement a successful project (which may very well be enough of a reward in itself), you basically have not contributed in any major way to the sustainability of your NGO in the process.

And this is why I would strongly encourage NGOs to apply for appropriate EU service contracts as well. As long as the pertinent expertise is available, and as long as fulfilling the contract is properly reconcilable with the NGO’s remit and convictions, providing services is a good opportunity to make some money that can be spent on worthy causes without any third party interference.

Non-profit organizations which realise that some of their capabilities have a market value can deploy them accordingly, and thus defend their autonomy and reduce dependency from external donors, many of whom have an agenda of their own.

This article was also published by the European Journalism Centre (EJC).

A very helpful related article by Jim Fruchterman: For Love or Lucre, Stanford Social Innovation Review, Spring 2011, p.42-47 (PDF)

Thanks Flickr user Yersinia for the photography.

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